Corporate collapses inundate courts

The Federal Court has dealt with a surge in corporate claims involving failed companies as it grapples with escalating costs and a lack of funds.

The 2010-11 financial year was the busiest of the last five for the court. Court filings, including appeals, jumped 36 per cent, from 3646 in 2009-10 to 4941 in 2010-11, according to the Federal Court’s annual report, released last week.

Modest increases in native title and bankruptcy filings occurred between 2009-10 and 2010-11 but the biggest jump came in corporations cases, which soared nearly 70 per cent, from 1676 matters in 2009-10 to 2838 in 2010-11.

Federal Court chief executive Warwick Soden said yesterday the great majority of the rise in corporations matters involved winding-up applications for struggling companies.

The rise in applications might be attributed to broader economic pressures, as well as a preference for parties to file claims in that court rather than in state supreme courts, when a choice was available, Mr Soden said.

Although the Federal Court experienced a surge in filings in 2010-11, this came off the lowest number of filings in five years in the 2009-10 year, at 3646. Filings in the court’s original jurisdiction, not including appeals, rose by 46 per cent in the period, from 2951 to 4303.

But the rise in case load came as the court is under pressure, because of “government’s tight fiscal position", to find ways to cut costs, the report said. Costs rose “well in excess" of increases to the court’s funding in 2010-11, leading it to seek government permission for an operating loss of $1.7 million for the year, it said.

Over the current three-year budget cycle, the court would “continue to face limited funding increases and escalating costs", it said. Three more years of operating losses are expected. About 45 per cent of the court’s costs, including judge and staff pay and accommodation, were fixed, which leaves little room to find additional savings, the report said.

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Mr Soden said yesterday the court was “looking to contain its costs within its appropriation and is presently working with the Attorney-General’s Department and the Department of Finance concerning the 2011-12 budget process".

Federal Attorney-General
Robert McClelland
’s spokesman noted filings in the court had fluctuated in recent years. The government was “committed to ensuring that federal courts have the resources they need to provide access to justice and help families and other litigants resolve their disputes with a minimum of fuss and delay", he said. “At the same time, the courts, as self-administering entities, continually look at their operations to see if they can carry out their core business more efficiently."

Migration appeals and applications filed dropped by 31 per cent, from 392 in 2009-10 to 269 in 2010-11. The court’s workload in migration matters was “subject to fluctuation due to changes that may occur in government policy or the impact of decisions of the High Court," the report said.

Mr Soden said the decline in migration appeals occurred because of a decline in migration decisions by the Federal Magistrates Court (FMC), from which the Federal Court hears appeals. “Our target of disposing of appeals from the FMC within 90 days of commencement also contributed to the reduction in appeals, there being little incentive by way of further delay," he said. But it was too early to tell if a rise in asylum seekers by boat would bring additional work for the court, Mr Soden said, because filing rates largely depended on how many appeals there were from the FMC.

“We believe it is simply too early to tell if there will be an influx of work, but the potential must exist," he said. “Any substantial increase in the work will place the court under increased financial pressure."

The court also referred 610 matters to mediation in the year, the most occurring for consumer law matters (171), followed by corporations (128), industrial (96) and intellectual property (81) matters.

The 2010-11 year also saw the Federal Court introduce significant changes to its practise rules, from August 1. The major changes included revisions to costly court processes, including discovery of documents, pleadings and expert evidence, in order to try and make litigation quicker and cheaper.